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LEVEL 3
CERTIFICATE IN INVESTMENT OPERATIONS

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INTRODUCTION TO SECURITIES AND
INVESTMENT (INTERNATIONAL)
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(VERSION 17)
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TIME ALLOWED: 1 HOUR

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No copying of any part of this paper is permitted without the prior

written authority of the Chartered Institute for Securities & Investment

© Chartered Institute for Securities & Investment

How to use this sample paper

These 50 questions should be answered in an hour in the real exam, so make sure
you time yourself accurately.

Record your answer for each question by circling your selected answer.

When you have finished the test, you may check your answers against the Answer
Sheet at the back of this paper.

The exam is scored as follows:

46-50 Pass with Merit

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35-45 Pass
0-34 Fail

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For those questions you answered incorrectly, the answer sheet will show you the
corresponding syllabus element, sub element and learning objective against which
the questions were written, so you can identify any syllabus areas where you may
need to revise further.
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Introduction to Securities & Investment (International) (Version 17)

1 Why might higher interest rates reduce the level of economic activity?

A Exchange rates might become more volatile

B GDP levels might become less stable

C The cost of borrowing might go up

D The rate of inflation might fall

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2 What is the PRIME responsibility of the Bank of England's Monetary Policy
Committee? PA
A Determining interest rates in accordance with inflation targets

B Intervening in the market to influence exchange rates

C Organising the amount of notes and coins in circulation

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D Preparing economic statistics for the government

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3 A spot transaction in foreign exchange is one that settles:

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A in two business days

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B in five business days

C at a date to be agreed
D within two hours of confirmation
Introduction to Securities & Investment (International) (Version 17)

4 Which of the following markets uses a quote-driven trading method?

A NYSE Euronext
B NASDAQ

C Paris Bourse

D Deutsche Börse

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5 Stock market indices form the basis of:

A tracker products

B warrant issues
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C Treasury Bills

D active funds
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6 The XETRA DAX index relates to stock market performance in which country?
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A Italy
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B Germany

C France
D Spain
Introduction to Securities & Investment (International) (Version 17)

7 What type of bond is a gilt?

A Foreign company-issued

B UK government

C UK company-issued

D Foreign government

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8 For which of the following reasons would governments issue bonds?

A To ensure a strong flow of cash throughout the economy

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B To offer good investment returns to individuals when interest rates are low

C To finance their spending

D To ensure a high reserve of monies is held centrally

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9 Which of the following is a Eurobond? A bond:

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A issued by the government of a member state of the EU

B issued in any European currency other than sterling

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C issued by a US company specifically for European investors

D denominated in a currency other than that of the country where the issuer is
based
Introduction to Securities & Investment (International) (Version 17)

10 As a result of two recent derivative agreements, Paul agrees to pay £5,000 to

James for Asset A in 3 months' time and Eric buys the right, but not the
obligation, to purchase Asset B from Stuart in 6 months' time. Who is referred to
as a 'holder'?

A Paul

B James

C Eric

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D Stuart

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11 Which of the following is TRUE of the pricing of shares in investment trusts?

A The investment trust fund manager sets prices daily

B The investor's stockbroker decides the price paid at the time of execution
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C Prices are set by market makers and depend on demand and supply

D The price is set at incorporation and does not change

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12 Compared to direct property investment, Real Estate Investment Trusts normally

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offer a reduced level of:

A liquidity risk

B institutional risk

C legal risk

D systemic risk
Introduction to Securities & Investment (International) (Version 17)

13 Which of the following statements regarding exchange-traded funds in the UK is

TRUE? They are:

A priced at or near net asset value

B private limited companies

C traded through a market maker

D subject to UK stamp duty

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14 Which of the following instruments is principally designed to protect the holder
against a fall in the market?
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A A hedge fund

B A unit trust

C An ISA
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D An index tracker fund

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15 For what purpose is a decreasing term assurance policy often used?

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A To protect a repayment mortgage

B To protect an interest-only mortgage

C To cover the risk of incurring private medical expenses

D To cover the risk of needing long term care

Introduction to Securities & Investment (International) (Version 17)

16 Which of the following most accurately defines a rights issue?

A A cash distribution of profits to the shareholders of a company

B A free issue of equity to existing shareholders in proportion to their

shareholdings

C An offer of new shares to existing shareholders by a company as a way of

raising cash

D An offer of shares rather than a cash distribution of profits to the

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shareholders of a company

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17 In an order driven market:
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A market makers display two way prices electronically

B market makers must display bid and offer prices

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C prices must be displayed during the mandatory quote period

D orders from buyers and sellers are automatically matched

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18 A bond which is issued in a country other than that of the issuer's home country
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is a feature of a:

A domestic bond

B strippable bond

C eurobond

D government bond
Introduction to Securities & Investment (International) (Version 17)

19 If an option trader thinks a share price will fall, they should:

A buy a call

B write a call

C buy a put

D write a put

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20 What is the independent body that supervises the board of an OEIC called?

A The Financial Conduct Authority

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B The Depositary

C The Notary

D The Trustee
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21 Which of the following statements about an investment trust is TRUE?

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A It is an investment scheme whereby individuals buy shares through a

trustee
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B It is an investment scheme whereby individuals buy shares through a

manager

C It is a trust managed for an individual investor

D It is a listed company which invests in the shares of other companies
Introduction to Securities & Investment (International) (Version 17)

22 What is insider dealing?

A A criminal activity involving placement and layering

B A civil offence which carries a very large fine

C A criminal offence involving the abuse of price-sensitive information

D A civil activity involving buying equities prior to their rise in value

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23 Why does mortgage payment protection cover need to be reviewed on a regular
basis?
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A So that changes in income tax can be taken into account
B To offset the effect of inflation

C Protection is provided on a level basis, so doesn't reflect interest rate

changes
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D To take account of changes in the stock market

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24 When gathering information from a client, why is it important to establish the

client's level of knowledge, experience and risk that they can bear?
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A So that recommendations are both suitable and appropriate

B In order to justify the level of fees

C To make communication easier

D So that a long-term relationship can be established

Introduction to Securities & Investment (International) (Version 17)

25 The difference between an overdraft and an unsecured loan is that:

A an overdraft is secured on assets

B only an overdraft can be authorised

C the interest rate on an overdraft is usually much lower

D an overdraft can be unauthorised

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26 In a market economy the interaction between consumers and businesses will
lead to:

A stockpiles of unused goods

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B the formation of a market-clearing price
C scarcity of sought after resources

D low prices, encouraging new forms of business

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27 Within Islamic finance the charging of interest is:

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A riba
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B gharar

C murabaha

D haram
Introduction to Securities & Investment (International) (Version 17)

28 The bond markets allow governments to:

A raise taxes in line with inflation

B borrow directly from investors

C profit from bond trading activities

D manage the balance of payments

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29 Firms that only offer restricted advice will:

A only advise on the top products in each sector

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B limit advice to their most valued clients

C always charge less than independent advisers

D only give advice on their own products

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30 Responsible investing reflects the:

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A ethical beliefs of the client

B care fund managers take when selecting investments

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C impact that company decisions have on the environment

D tariffs imposed on pollution
Introduction to Securities & Investment (International) (Version 17)

31 Mixed economies benefit from government intervention through the:

A planning and allocation of resources

B forced oversupply of essential products

C provision of a welfare system

D setting of prices for essential goods and services

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32 Owners of ordinary shares can benefit by receiving:

A company announcements in advance of their general release

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B dividends

C a fixed dividend each year

D profits from the company ahead of all other share classes

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33 XYZ shares are trading at 200 pence. The company pays an annual dividend of
10 pence. There are 100,000 shares in issue and interest rates are 4%.
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What is the dividend yield?

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A 1.0%

B 2.0%

C 2.5%

D 5.0%
Introduction to Securities & Investment (International) (Version 17)

34 An investor in overseas shares would be impacted by foreign exchange risk if

the:

A investor's currency strengthens potential profits would be magnified

B investor's currency weakens any potential profit would be reduced

C foreign currency remains stable the investor will not realise any profit

D investor's currency weakens potential profits would be exaggerated

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35 An example of a mandatory corporate action with options would be a:

A bonus issue
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B takeover
C rights issue

D cash dividend
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36 A company has announced a 1 for 2 bonus issue. Its shares are currently
trading at £6.00.
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What is the theoretical ex-bonus price?

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A £2.00

B £3.00

C £4.00

D £12.00
Introduction to Securities & Investment (International) (Version 17)

37 Holding shares in registered form requires:

A the investor's name being recorded on the share register

B a share certificate to be issued

C the holding to be deposited at Euroclear

D the stock to be immobilised

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38 A private equity firm generally achieves its profit through capital gain on exit.
This may involve:
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A de-listing its shares from the exchange

B a special exemption from capital gains tax

C completing a company buy-out

D selling its shares back to the company

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39 Within the CISI's Code of Conduct, personal accountability requires members

to:
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A put their client's interests first

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B avoid damaging the reputation of their organisation

C be alert to conflicts of interest

D continually strive for professional excellence

Introduction to Securities & Investment (International) (Version 17)

40 Price risk for the holder of a bond is likely to be caused by a:

A change in the rate of inflation

B fall in the FTSE 100

C fall in interest rates

D significant rise in interest rates

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41 Criminals use 'breeder' documents to facilitate:

A the creation of fake profiles PA

B romance scams

C terrorist activity

D telecom fraud
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42 A final salary pension scheme will:

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A provide a pension linked to the size of contributions

B always be a non-contributory scheme

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C always provide a higher level of benefits than a personal pension

D provide a salary related to number of years service and salary
Introduction to Securities & Investment (International) (Version 17)

43 The biggest advantage of holding cash is:

A that all cash deposits are guaranteed

B returns are always positive

C that interest rates are always fixed

D the liquidity it provides

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44 On the OTC derivatives market, trades:

A are negotiated and traded privately

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B are executed on an exchange

C have standardised features

D are guaranteed by the clearing house

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45 A difference between an unsecured loan and a secured loan is:

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A a secured loan cannot be repaid early

B the secured loan is likely to be cheaper

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C the unsecured loan is linked to the item purchased

D an unsecured loan cannot be repaid early
Introduction to Securities & Investment (International) (Version 17)

46 Cryptocurrencies differ from fiat currencies because they are:

A a medium of exchange

B not backed by assets

C legal tender

D not issued by a central bank

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47 Interest rate swaps are an:

A exchange traded product exchanging interest payments

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B OTC product exchanging interest payments

C exchange traded product used to speculate on interest rates

D OTC product that exchanges cash flows from the start

E
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48 The difference between passive and active fund management is that active fund
management:
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A results in portfolios that are generally less expensive to run

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B requires fewer staff to manage the funds

C involves constructing a portfolio to track a recognised index

D seeks to outperform a benchmark

Introduction to Securities & Investment (International) (Version 17)

49 Property prices are predominantly determined by:

A interaction in a centralised marketplace

B institutional investors

C complex legal considerations

D changes in demand

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50 The GBP / USD spot rate is 1.2500. UK rates are 4.0% and rates in the US are
3.0%.
What is the six-month forward rate?
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A 1.2380
B 1.2439

C 1.2562
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D 1.2621
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M
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Introduction to Securities & Investment (International) (Version 17)

Question Number Answer Syllabus Reference

1 C 2.1.2
2 A 2.1.3
3 A 5.4.1
4 B 3.1.11
5 A 3.1.11
6 B 3.1.11
7 B 4.2.1
8 C 4.2.1

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9 D 4.2.1
10 C 6.4.1

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11 C 7.3.2
12 A 7.3.1
13 A 7.4.1
14 A 7.5.1
15 A 9.4.1
16 C
PA 3.1.6
17 D 3.1.12
18 C 4.3.1
19 C 6.3.2
20 B 7.2.1
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21 D 7.3.1
22 C 8.3.1
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23 C 10.1.1
24 A 10.2.1
25 D 9.2.1
26 B 2.1.1
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27 D 9.3.3
28 B 1.1.2
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29 D 1.1.3
30 A 1.1.4
31 C 2.1.1
32 B 3.1.2
33 D 3.1.3
34 D 3.1.4
35 C 3.1.5
36 C 3.1.7
37 A 3.1.13
38 D 7.5.2
39 B 8.1.3
40 D 4.4.1
41 A 8.2.2
 42 D 9.1.1
43 D 5.1.2
44 A 6.5.1
45 B 9.2.4
46 D 5.1.3
47 B 6.6.1
48 D 7.1.2
49 D 5.3.1
50 B 5.4.2

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